Economy Suffers Another Setback
The nation’s unemployment rate hung at 5.9% in July as U.S. employers reacted to a plummeting stock market and weakening consumer demand by adding only 6,000 net new workers, the Labor Department said Friday.
July’s jobs figure was sharply lower than the 66,000 created in June and the 60,000 that economists had been predicting for last month. Coupled with an unexpected drop in the average workweek, the figure was another sign that the economic recovery, which seemed so strong earlier this year, is sputtering.
“It’s hard to put a good face on these numbers,” said Princeton University labor economist Alan B. Krueger. “Six thousand is essentially no job growth at all.”
Compounding the bleak picture, the Commerce Department reported Friday that U.S. factory orders fell 2.4% in June, instead of rising 0.5% as analysts had expected. The decline came atop earlier reports suggesting that the comeback of the nation’s hard-hit manufacturing sector is stalling.
Investors reacted by driving down the Dow Jones industrial average 193.49 points, or 2.3%, to 8,313.13, and snapping up bonds, which are considered a financial haven in bad times. The Standard & Poor’s 500 index and Nasdaq composite index fell by similar percentages. The bond buying binge drove the yield, or market interest rate, on some securities to record lows.
Wall Street was swept by rumors that the Federal Reserve is preparing to cut its key interest rate again out of worry that a weakening economy and tumbling market are feeding on each other and could pull the country back into recession.
But with the benchmark overnight-funds rate already at a four-decade low of 1.75%, many analysts said the central bank would hold off on additional cuts as long as possible.
In an apparent move to reassure markets, Robert Parry, president of the Federal Reserve Bank of San Francisco, said Friday that the economy remained on track to recover.
“While the path of expansion does appear to be volatile, I believe it’s still intact,” Parry told an audience in Portland, Ore. He is a nonvoting member of the Fed’s policymaking Open Market Committee.
The cumulative effect of this week’s statistics has been to tarnish a comforting picture offered by business and political leaders of a U.S. economy that has become disconnected from its stock market and is proceeding with a recovery even as stocks suffer steep losses.
In addition to barely perceptible job growth, reports in recent days showed that the economy expanded at only a 1.1% annual pace between April and June, substantially less the 5% rate at which it grew the preceding three months.
“What the numbers suggest is the economy is not growing in any consequential fashion,” said Fred Breimyer, chief economist for State Street Corp. in Boston. “Whatever positive trends were underway earlier in the year slipped backward in July.”
All eyes now are on American consumers, who have kept the economy afloat with a binge of borrowing and buying that has offset sharp cutbacks by business.
Economic optimists were quick to tout figures this week that indicate that consumers still have the urge to splurge. These included a report Friday that consumer spending climbed a solid 0.5% in June, and another Thursday that showed July auto sales running at a near-record annual pace of 18.1 million vehicles.
But skeptics counter that most of the recent buying was based almost entirely on rock-bottom interest rates that can’t be sustained indefinitely--and that, in any case, consumers already have borrowed to the hilt.
Outstanding consumer credit, most of it from credit cards and auto loans, rose 5.7% in the 12 months ended in May, according to recent Fed figures. Home mortgage and home equity loan debt rose more than 10% in the year ended in March.
To many skeptics, Friday’s job figures cinched the case for concern.
“If we don’t get some faster job growth soon, the unemployment rate will almost certainly start to go up,” said Paul L. Kasriel, economic research director for Northern Trust Co. in Chicago.
If that happens, Kasriel said, “it’s going to be bad for a lot of these households that have borrowed.”
“You’re going to start seeing a lot of people declaring bankruptcy,” he said.
Employment needs to expand by about 150,000 a month just to keep pace with the entrance of new workers, economists estimate. Anything slower, and either the jobless rate goes up, or employees who have lost jobs give up looking for new ones and drop out of the labor force.
The latest jobs report showed that what little growth there was in July occurred in services but that it was more than offset by employment cutbacks in construction, manufacturing and temporary employment.
The nation’s service sector added 50,000 workers during the month, its fifth straight monthly increase, the Labor Department reported. More than half were in health care.
Meanwhile, the construction industry shed 30,000 jobs; manufacturing trimmed 7,000; and the temporary-employment industry, which had been adding workers, dropped 35,000.
In all, 8.3 million workers were jobless in July, about the same as in May and June. In addition, 4.2 million people who wanted full-time employment were working part time during the month, up 278,000 from June, and an additional 1.5 million were counted as “marginally attached” to the labor force, having looked for a job during the last year but not in recent weeks.
Analysts said that just as disturbing as the negligible job growth was the fact that the average workweek declined three-tenths of an hour to 34 hours.
“If you’re not going to get job increases, at least you should be getting a rising workweek at this stage in a recovery, but we didn’t,” said Kasriel of Northern Trust.
On a positive note, average hourly earnings for production and nonsupervisory workers, who make up about 80% of the nation’s labor force, continued to rise in July, climbing 4 cents to $14.79.
And despite the lack of job growth in July, Labor Department officials revised figures upward for May and June. A combined 88,000 net new jobs were added in the two months, up from the 60,000 previously reported.
Still, the economy has not recovered the job-creating power it demonstrated in the best years of the 1990s expansion, when employers regularly added close to 400,000 a month.
Analysts say current conditions bear a striking resemblance to those of the early 1990s, when it took the unemployment rate more than three years to recover from a mild recession. The revival became known as the “jobless recovery.”
